General Comments on the Annual Accounts
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General Comments on the Annual Accounts |
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NET TURNOVER Net turnover and sales are described in greater detail here. OTHER OPERATING INCOME Other operating income, which primarily comprises gains and losses on sale of fixed assets and rental income, amounts to DKK 17 million, against DKK 48 million in 1998. In 1998, Post Denmark realised a large gain on disposal of a single fixed asset. OTHER EXTERNAL EXPENSES Total external expenses amounted to DKK 2,920 million, against DKK 2,709 million in 1998, equivalent to an increase of DKK 211 million, or 7.8 per cent. The increase was planned and is mainly due to expenses for the continued automation of production and process improvements in the company, for IT, including the cost of ensuring Year 2000 compliance, and marketing. The growth in sales resulted in an increase in direct variable costs. Finally, an increase in prices of about 3.0 per cent generated an increase in external expenses of about DKK 80 million. STAFF COSTS Staff costs accounted for DKK 6,644 million in 1999, against DKK 6,221 million in 1998, equal to an increase of DKK 423 million, or 6.8 per cent. As mentioned earlier, the increase in pension contributions to civil servants from 15 per cent to 20 per cent (22 per cent in the first half of 1999) amounts to DKK 158 million. Excluding this increase, staff costs rose by DKK 265 million, or 4.3 per cent. This should be seen in relation to wage-bargain increases of about 3.3 per cent, an increase in sales and the intensive efforts to implement new technology. To this should be added a satisfactory trend in the key figures for sickness absence, overtime working and employee satisfaction. The number of employees, translated into full-time posts, totalled 25,714 in 1999, compared with 25,472 in 1998. This equals a rise of 242 persons, or 1.0 per cent. OTHER OPERATING EXPENSES This item primarily covers operating expenses for the Post & Tele Museum and canteen expenses. DEPRECIATION Depreciation accounted for DKK 748 million in 1999, against DKK 721 million in 1998, a net increase of DKK 27 million. The increase is due to investment in fixed assets of DKK 607 million. On the other hand, depreciation of DKK 75 million against minor assets acquired in connection with the conversion into Post Denmark was removed from the accounts. Major investments included machinery for automatic letter sorting and final route sorting and new equipment for the branch network. PROFIT BEFORE FINANCIAL ITEMS The profit before financial items amounted to DKK 508 million in 1999, against DKK 480 million in 1998. The operating profit margin calculated as profit before financial items as a percentage of net turnover was 5 per cent in 1999, which is unchanged from 1998. FINANCIAL ITEMS Financial income accounted for DKK 109 million in 1999, against DKK 89 million the previous year. Excluding foreign exchange adjustments, financial income declined by DKK 20 million in 1999, primarily due to the lower level of interest rates in 1999 and to Post Denmark having less surplus liquidity after redeeming some of its loans. Financial expenses accounted for DKK 119 million in 1999, compared with DKK 107 million in 1998. Financial expenses excluding foreign exchange adjustments fell by DKK 20 million from 1998. The fall is a result of current reductions in interest-bearing debt and an extraordinary repayment of DKK 400 million on a loan at the end of 1998. The total result of foreign exchange management in 1999 is a net gain of DKK 5 million, against a net loss of DKK 3 million in 1998. TAX DKK 184 million has been set aside for tax on the profit for the year. This corresponds to an effective tax rate of 39 per cent, against a rate of 38 in 1998. The effective tax rate is higher than the corporation tax of 32 per cent as a result of the 75 per cent reduction in the write-off of initial goodwill on the establishment of the company in 1995 and non-depreciable parts of the buildings owned by Post Denmark. As a result of an adjustment, for tax purposes, of the company’s opening balance sheet at 1 January 1995, deferred taxes were adjusted by DKK 54 million, primarily in relation to buildings. The adjustment is charged directly against equity. CASH FLOWS The impact on cash flow from operating activities fell by DKK 179 million from DKK 1,172 million in 1998 to DKK 993 million in 1999. Most of the decline is due to negative effects from changes in operating capital of DKK 87 million in 1999, compared with positive effects of DKK 177 million in 1998. Receivables from the sale of goods and services rose by 10 per cent, which is relatively more than the increase in turnover. This is due to special circumstances in connection with the payment of the magazine subsidy from the Ministry of Transport in December. Debt to suppliers and other debt were extraordinarily large at the end of 1998 as a result of Post Denmark’s investment activities, which is the main reason for the fall in cash flow from suppliers and other debt in 1999, when figures reverted to normal. The impact on cash flow from investing activities amounted to DKK (593) million in 1999, against DKK (724) million in 1998. The fall is attributable mainly to large investments in letter sorting plants in 1998. In 1999, Post Denmark injected capital in the company SDPS A/S, bought Budstikken Transport A/S and established a company WebLogistics A/S in partnership with DFDS DanTransport. These activities together account for cash investments of DKK 30 million. The impact on cash flow from financing activities amounted to DKK (126) million in 1999, against DKK (718) million in 1998. The difference is mostly due to the raising of a new fixed rate loan of DKK 200 million in 1999, in part to pay for an extraordinary repayment of DKK (400) million on a variable rate loan at the end of 1998. At the end of 1999, liquid funds amounted to DKK 1,062 million, against DKK 787 million in 1998. DKK 143 million of the liquid funds of DKK 1,062 million is held in readily marketable securities. This is due to active portfolio management and continuous adjustment to market conditions. EQUITY In 1999, the solvency ratio (equity as a percentage of total liabilities) was 46 per cent, compared with 45 per cent in 1998.
FINANCIAL RISKS Post Denmark’s business activities expose the company to a number of risks, such as movements in exchange and interest rates that may affect the company’s financial holdings as well as payments and balance-sheet items in connection with payment for mail sent to and from Denmark. Financial risks are monitored centrally by the finance department in accordance with instructions and guidelines approved by the Executive Board and the Board of Directors. INTEREST RATE RISK At 31 December 1999, Post Denmark’s interest rate risk was about DKK 2 million, or the amount by which a 1 percentage point movement in the interest level would affect results. To limit the effect of movements in interest rates on results and on expectations over future interest rate movements, the bond portfolio and the duration of the bond portfolio were reduced in 1999. With the same object, some of Post Denmark’s loans were converted into a 10-year serial loan of DKK 200 million from the European Investment Bank in 1999. The loan was raised in pounds and converted into euros through a currency swap. The interest rate risk on the remaining portion of the loans at the short end of the yield curve is nearly offset by the interest rate risk on liquid funds placed as short-term money market deposits. CURRENCY RISK Post Denmark’s currency risk is mainly due to amounts paid for mail sent to and from Denmark. The currency risk at 31 December 1999 on the euro loan mentioned above was hedged by a corresponding euro deposit. Purchases of goods and services from other countries are mostly paid for in Danish kroner. Consequently, the currency risk in this area is small. It is Post Denmark’s policy to limit the effect of movements in exchange rates on profits by entering into forward exchange transactions. The currency risk on payments for mail sent to and from Denmark is in SDRs (Special Drawing Rights) and in Norwegian kroner and Swedish kronor. Balance sheet items (provisions at 31 December 1999) and budget positions for 2000 are hedged, although the latter not fully. Post Denmark’s foreign exchange policy provides for only the volatile currencies in the SDR basket (US dollars, yen and pounds) to be hedged. Thus, the euro constituent is not hedged. At 31 December 1999, Post Denmark had entered into the following forward exchange transactions:
In January 2000, additional forward exchange transactions were entered into to hedge budget positions: SEK 9.5 million and NOK 26.1 million. The average maturity is 235 days, as transactions hedging expected balance-sheet items at the end of 2000 account for a considerable share. CREDIT RISK Credit risk covers receivables from the sale of goods, deposits at banks, bond portfolios and financial instruments. The composition of receivables from the sale of goods is such that the risk is considered to be at an acceptable level. Some receivables are secured by advance payments, and about 25 per cent relates to receivables from other postal operators. Post Denmark currently assesses the credit rating of its financial partners and its policy is to co-operate only with financial partners with a high credit rating. The credit risk on bonds is limited in that Post Denmark may invest only in Danish government bonds or treasury bills and in Danish mortgage bonds. RISK ANALYSES Post Denmark’s buildings and plants are designed and fitted up to match current legislation, but also to match individual assessments of overall vulnerability in case of damage to the individual building and the individual production plant. Post Denmark regularly undertakes quantitative risk analyses and auditing of accidental risks or hazard risks. The purpose of these risk analyses is to identify and measure the company’s risk level, to limit the company’s risks and transfer unacceptable residual risks to insurance companies and suppliers. The risk analyses are carried out within the framework of the DS/INF 85 standard. CONTINGENCY Post Denmark is building a multi-level contingency structure. This enables the company to take action quickly, centrally and/or locally, in case anything happens that requires immediate managerial action. The contingency plan is designed to ensure that Post Denmark can be registered in EMAS (Eco-Management and Audit Scheme) which was established by Council Regulation No. 1836/93 and includes companies that have set up environmental management systems complying with for instance the ISO 14001, and which each year prepare a public environmental statement. INSURANCE Post Denmark has taken out statutory insurance cover and other commercial insurance policies to ensure that Post Denmark maintains its freedom of action financially in case of accidental loss of or damage to property or if claims for damages are made against Post Denmark.
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